As a founder, when raising capital for an early-stage enterprise technology company, there are many questions you will need to answer. Below are a few topics that will be covered by investors. Think of these as a starting point for any conversation with an investor. Be honest in answering these questions, if you can’t answer certain questions or are still gathering data, let the investor know you’ll get back to them, (and make sure you do).
General
- What problem are you solving?
- How are you solving it?
The most obvious, high-level questions should be the easiest for you to answer. Know what problem your product or service solves. Be able to explain not only what problem you are solving, but why it is significant and why customers will use it, who will pay for this solution. Explain your business model succinctly and use examples, leverage a few use cases to illustrate.
Validation
- How many customers do you have?
- If you are still building the product, how many customers have you talked to and lined up for a pilot?
You want to convey that you understand the problem in the market that you are looking to solve. Based on either your early traction or your discussions with 10’s or 100’s of potential customers, you need to show that you have a good handle on the market need.
Market
- Is the market you are tackling large enough to generate venture-type returns? (Is it a large market today or is it a smaller but a fast-growing market?)
- Are there dominant players in the space? (Who are your competitors?)
- What is the plan to get to $1MM in ARR and can it scale to $100MM ARR?
You must have a strong understanding of the market, explain why now? and how you will win against your competition? Be able to discuss the size and growth rate of the market.
Growth
- What are your KPIs on growth? (Are they organic or paid growth? Do you have any channel partners?)
- What are the costs to acquire customers?
- Is the business you are building set up to be highly scalable with metrics that demonstrate an efficient use of capital?
Explain how you plan to acquire customers and the costs to do so. Ultimately, you want to be able to convey that you will be able to deliver this solution while maintaining a significant margin.
Risks
- What are some of the hurdles you have overcome? What additional hurdles do you foresee?
- Is your solution subject to any regulatory rules?
- Do you have enough runway to get to your next meaningful milestone?
- Is your solution reliant on someone else’s platform or one key partner? (Can one single API shut down your company or one cancelled partnership?)
There are many risks in any business, so you are sure to get questions about yours. Demonstrate whether the business is reliant on any significant partners or if there are any regulatory issues to be aware of.
Timing
- Why now? (What has led to developing this solution now?)
- What does the market window to succeed look like?
Be sure you can convey what is unique about the timing of your solution on the market. Your customers are at the heart of these questions; distinguish between pain points customers are experiencing, resulting in the need for a solution, and the changes in the market (such as regulation) that requires customers to adopt your solution.
Defensibility
- Is your company IP-based or execution-based?
- What is it about the company that will make it tough for competitors? Talent? Partnerships? First mover in the market?
Know your competitors and be able to explain why a competitor will not win over your solution. Do you have real IP that will protect your business? Also, discuss the pace you will be able to acquire customers in relation to your competition and detail how your features and functions compare to your competitors.
Traction
- How many paying customers do you have? (If none, how many customers have you talked to? Have any agreed to pilots?)
- How often do customers use this solution, daily? weekly? and how useful is it to their businesses? (early ROI data?)
- What is the customer churn? And what are the reasons for this churn?
Discuss what you have learned since launching: how your customers engage with your solution, what frequency? How sticky is it? How does it benefit customers? and if there are challenges, how you plan to address them.
Financial
- Explain capital needs and use of proceeds: how much capital does the business need to get to the next meaningful milestone that will generate a significant increase in valuation?
- What KPIs will the company be able to achieve with this financing? (And what are today’s KPIs?)
Be realistic and straightforward about your company’s financial situation. Detail how much has been invested to get to this point, and how much funding you need to get to the next meaningful milestone and be able to explain the use of proceeds.
Example: We have figured out the sales model and just need some capital to fund sales and marketing. For X amount of investment, we can grow sales by Y.
In conclusion
This is by no means an exhaustive list of questions you need to think about—as I did not include a section on the key team members, for example—but if you seek capital to scale your business, you’ll need to explain how and why you’re worth betting on and this list is just a start.